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Author : Morten Nalholm
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (122 download)
Download or read book Static Hedging of Barrier Options Under General Asset Dynamics written by Morten Nalholm and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Morten Nalholm
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (873 download)
Download or read book Working Papers written by Morten Nalholm and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jan H. Maruhn
Publisher : Walter de Gruyter
ISBN 13 : 3110204681
Total Pages : 210 pages
Book Rating : 4.1/5 (12 download)
Download or read book Robust Static Super-replication of Barrier Options written by Jan H. Maruhn and published by Walter de Gruyter. This book was released on 2009 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt: Static hedge portfolios for barrier options are very sensitive with respect to changes of the volatility surface. To prevent potentially significant hedging losses this book develops a static super-replication strategy with market-typical robustness against volatility, skew and liquidity risk as well as model errors. Empirical results and various numerical examples confirm that the static superhedge successfully eliminates the risk of a changing volatility surface. Combined with associated sub-replication strategies this leads to robust price bounds for barrier options which are also relevant in the context of dynamic hedging. The mathematical techniques used to prove appropriate existence, duality and convergence results range from financial mathematics, stochastic and semi-infinite optimization, convex analysis and partial differential equations to semidefinite programming.
Author : Leif B. G. Andersen
Publisher :
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.:/5 (129 download)
Download or read book Static Replication of Barrier Options written by Leif B. G. Andersen and published by . This book was released on 2000 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a number of new theoretical results for replication of barrier options through a static portfolio of European put and call options. Our results are valid for options with completely general knock-out/knock-in sets, and allow for time- and state-dependent volatility as well as discontinuous asset dynamics. We illustrate the theory with numerical examples and discuss the practical implementation.
Author :
Publisher :
ISBN 13 :
Total Pages : 272 pages
Book Rating : 4.E/5 ( download)
Download or read book Static Vs Dynamic Hedging written by and published by . This book was released on 1997 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author :
Publisher :
ISBN 13 :
Total Pages : 88 pages
Book Rating : 4.:/5 (113 download)
Download or read book Static and Dynamic Hedging of Barrier Options written by and published by . This book was released on 2003 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Alessandro Sbuelz
Publisher :
ISBN 13 :
Total Pages : 66 pages
Book Rating : 4.:/5 (129 download)
Download or read book A General Treatment of Barrier Options written by Alessandro Sbuelz and published by . This book was released on 1998 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article offers a general unifying treatment of barrier options. The unifying treatment is based on a general representation of the risk-neutral density of the absorbed return process of the underlying asset: the quot;convolution density.quot; On the basis of the convolution density, the article establishes relationships between plain and barrier options as well as knock-outs and knock-ins: the quot;plain/knock parities.quot; The plain/knock parities provide new static hedging strategies for the replication of double barrier options; a double barrier option is a portfolio of single barrier options. The article then derives new representations for the analytical solution of option prices in the double barrier setting. For the first time, the analytical solution of the price of the contract with a single knock-in triggering a single knock-out is offered, and new representations of the analytical solution of the price of double knock-ins and knock-outs are also offered. The form of these analytical solutions is a series which absolutely converges at a very high rate.
Author : Rüdiger Kiesel
Publisher : World Scientific
ISBN 13 : 9814280119
Total Pages : 414 pages
Book Rating : 4.8/5 (142 download)
Download or read book Alternative Investments and Strategies written by Rüdiger Kiesel and published by World Scientific. This book was released on 2010 with total page 414 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book combines academic research and practical expertise on alternative assets and trading strategies in a unique way. The asset classes that are discussed include : credit risk, cross-asset derivatives, energy, private equity, freight agreements, alternative real assets (ARA), and socially responsible investments (SRI). The coverage on trading and investment strategies are directed at portfolio insurance, especially constant proportion portfolio insurance (CPPI) and constant proportion debt obligation (CPDO) strategies, robust portfolio optimization, and hedging strategies for exotic options.
Author :
Publisher :
ISBN 13 :
Total Pages : 788 pages
Book Rating : 4.3/5 (555 download)
Download or read book The Journal of Derivatives written by and published by . This book was released on 2007 with total page 788 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Emmanuel Deogratias
Publisher : LAP Lambert Academic Publishing
ISBN 13 : 9783659362316
Total Pages : 124 pages
Book Rating : 4.3/5 (623 download)
Download or read book Methods for Pricing and Hedging Plain Vanilla Barrier Options written by Emmanuel Deogratias and published by LAP Lambert Academic Publishing. This book was released on 2013 with total page 124 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Black Scholes Model (1973) is used to price and hedge plain vanilla barrier options on a non dividend paying asset. Under this model, Monte Carlo Simulation, Stratified sampling, Simpson's rule, Trapezoidal rule and Antithetic variable techniques have been used to determine the value and hedging portfolio of a plain vanilla barrier option. Also stochastic dynamic programming has been developed so as to determine the price and hedging portfolio of the option. Finally the methods are compared to each other in terms of accuracy. It is found that stratified sampling technique is the best method after comparing with other methods.
Author : Klaus Bjerre Toft
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book How Well Can Barrier Options Be Hedged by a Static Portfolio of Standard Options? written by Klaus Bjerre Toft and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Derman, Ergener, and Kani (1994) construct static hedges of barrier options by assuming that local asset return volatility is a function of asset price and time only. However, Dumas, Fleming, and Whaley (1996) find that local volatilities implied from Samp;P 500 index option prices change in a nonpredictable fashion. It is therefore important to determine how sensitive the quality of a static barrier option hedge is to random changes in local volatilities. We investigate this issue by assuming that options are priced according to Heston's (1993) stochastic volatility model, and use these prices to construct static hedges of up and out barrier options. We then identify distributions of cash flows from these hedges by simulating asset price and volatility paths. Our simulations show that static hedges replicate barrier options quite well if the volatility of volatility is moderate or if the barrier option's payoff does not exhibit discontinuities. However, if the payoff on the boundary is noncontinuous, the quality of the static hedge deteriorates rapidly when the volatility of the volatility is large. This happens because a static hedge typically overhedges the volatility exposure of the target barrier option.
Author : Aytac Ilhan
Publisher :
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.:/5 (129 download)
Download or read book Optimal Static-Dynamic Hedges for Exotic Options under Convex Risk Measures written by Aytac Ilhan and published by . This book was released on 2008 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the problem of optimally hedging exotic derivatives positions using a combination of dynamic trading strategies in underlying stocks, and static positions in vanilla options when the performance is quantified by a convex risk measure. We establish conditions for the existence of an optimal static position for general convex risk measures, and then analyze in detail the case of expected shortfall with a power loss function. Here we find conditions for uniqueness of the static hedge. We illustrate the computational challenge of computing the market-adjusted risk measure in a simple diffusion model for an option on a non-traded asset.
Author : Nassim Nicholas Taleb
Publisher : John Wiley & Sons
ISBN 13 : 9780471152804
Total Pages : 536 pages
Book Rating : 4.1/5 (528 download)
Download or read book Dynamic Hedging written by Nassim Nicholas Taleb and published by John Wiley & Sons. This book was released on 1997-01-14 with total page 536 pages. Available in PDF, EPUB and Kindle. Book excerpt: Destined to become a market classic, Dynamic Hedging is the only practical reference in exotic options hedgingand arbitrage for professional traders and money managers Watch the professionals. From central banks to brokerages to multinationals, institutional investors are flocking to a new generation of exotic and complex options contracts and derivatives. But the promise of ever larger profits also creates the potential for catastrophic trading losses. Now more than ever, the key to trading derivatives lies in implementing preventive risk management techniques that plan for and avoid these appalling downturns. Unlike other books that offer risk management for corporate treasurers, Dynamic Hedging targets the real-world needs of professional traders and money managers. Written by a leading options trader and derivatives risk advisor to global banks and exchanges, this book provides a practical, real-world methodology for monitoring and managing all the risks associated with portfolio management. Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.
Author : Petrus Bosman
Publisher :
ISBN 13 :
Total Pages : 174 pages
Book Rating : 4.:/5 (541 download)
Download or read book Static Hedging of Barrier Options written by Petrus Bosman and published by . This book was released on 2003 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Kyoung-Kuk Kim
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)
Download or read book Risk Analysis and Hedging of Parisian Options Under a Jump-Diffusion Model written by Kyoung-Kuk Kim and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A Parisian option is a variant of a barrier option such that its payment is activated or deactivated only if the underlying asset remains above or below a barrier over a certain amount of time. We show that its complex payoff feature can cause dynamic hedging to fail. As an alternative, we investigate a quasi-static hedge of Parisian options under a more general jump-diffusion process. Specifically, we propose a strategy of decomposing a Parisian option into the sum of other contingent claims which are statically hedged. Through numerical experiments, we show the effectiveness of the suggested hedging strategy.
Author : Thorsten Rheinlander
Publisher : World Scientific
ISBN 13 : 9814338796
Total Pages : 244 pages
Book Rating : 4.8/5 (143 download)
Download or read book Hedging Derivatives written by Thorsten Rheinlander and published by World Scientific. This book was released on 2011 with total page 244 pages. Available in PDF, EPUB and Kindle. Book excerpt: Valuation and hedging of financial derivatives are intrinsically linked concepts. Choosing appropriate hedging techniques depends on both the type of derivative and assumptions placed on the underlying stochastic process. This volume provides a systematic treatment of hedging in incomplete markets. Mean-variance hedging under the risk-neutral measure is applied in the framework of exponential L vy processes and for derivatives written on defaultable assets. It is discussed how to complete markets based upon stochastic volatility models via trading in both stocks and vanilla options. Exponential utility indifference pricing is explored via a duality with entropy minimization. Backward stochastic differential equations offer an alternative approach and are moreover applied to study markets with trading constraints including basis risk. A range of optimal martingale measures are discussed including the entropy, Esscher and minimal martingale measures. Quasi-symmetry properties of stochastic processes are deployed in the semi-static hedging of barrier options. This book is directed towards both graduate students and researchers in mathematical finance, and will also provide an orientation to applied mathematicians, financial economists and practitioners wishing to explore recent progress in this field.
Author : Peter Carr
Publisher :
ISBN 13 :
Total Pages : 61 pages
Book Rating : 4.:/5 (129 download)
Download or read book Static Hedging of Standard Options written by Peter Carr and published by . This book was released on 2017 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider the hedging of options when the price of the underlying asset is always exposed to the possibility of jumps of random size. Working in a single factor Markovian setting, we derive a new spanning relation between a given option and a continuum of shorter-term options written on the same asset. In this portfolio of shorter-term options, the portfolio weights do not vary with the underlying asset price or calendar time. We then implement this static relation using a finite set of shorter-term options and use Monte Carlo simulation to determine the hedging error thereby introduced. We compare this hedging error to that of a delta hedging strategy based on daily rebalancing in the underlying futures. The simulation results indicate that the two types of hedging strategies exhibit comparable performance in the classic Black-Scholes environment, but that our static hedge strongly outperforms delta hedging when the underlying asset price is governed by Merton (1976)'s jump-diffusion model. The conclusions are unchanged when we switch to ad hoc static and dynamic hedging practices necessitated by a lack of knowledge of the driving process. Further simulations indicate that the inferior performance of the delta hedge in the presence of jumps cannot be improved upon by increasing the rebalancing frequency. In contrast, the superior performance of the static hedging strategy can be further enhanced by using more strikes or by optimizing on the common maturity in the hedge portfolio.We also compare the hedging effectiveness of the two types of strategies using more than six years of data on Samp;P 500 index options. We find that in all cases considered, a static hedge using just five call options outperforms daily delta hedging with the underlying futures. The consistency of this result with our jump model simulations lends empirical support for the existence of jumps of random size in the movement of the Samp;P 500 index. We also find that the performance of our static hedge deteriorates moderately as we increase the gap between the maturity of the target call option and the common maturity of the call options in the hedge portfolio. We interpret this result as evidence of additional random factors such as stochastic volatility.
